Key Takeaways
- Manufacturing businesses often face cash flow challenges due to high operating costs and delayed payments.
- Using finance strategically can help manufacturers manage cash flow gaps, fund growth, and stabilise operations.
- Options such as secured and unsecured business loans, overdrafts, equipment finance, trade finance, and invoice finance can all improve cash flow.
- The right mix of finance can help manufacturers handle expenses, manage supply chains, and maintain consistent cash flow.
- Partnering with an experienced finance broker like Dark Horse Financial can help manufacturers access tailored funding solutions.
Cash flow can make or break a manufacturing business. Many manufacturers don’t have enough working capital, even when sales are good, because they have to pay for materials up front, run long production runs, and wait weeks for clients to pay. It’s a common problem: money quickly goes out to pay for wages, suppliers, and running costs, but it can take a long time for it to come back in.
Cash flow finance can be a big help in keeping production going and operations stable. When used correctly, it helps fill in the gaps between expenses and income, gives you more freedom to handle seasonal demand, and gives you more money to invest in new opportunities.
This article will look at how different types of manufacturing finance in Australia, such as secured and unsecured loans, overdrafts, equipment, trade, and invoice finance, can help an Australian manufacturing business improve its cash flow.
Understanding Cash Flow Challenges in Manufacturing
Cash flow cycles in Australian manufacturing businesses are often uneven. You have to pay for raw materials, labour, and overhead costs on a regular basis. However, customers may not pay you for weeks or even months after you deliver the goods. This delay puts pressure on working capital.
Common cash flow issues for manufacturers include:
- Long payment terms: Many clients operate on 30 to 90 day payment terms.
- Large inventory requirements: Materials and components often need to be purchased in bulk.
- Seasonal fluctuations: Differences in demand throughout the year can cause inconsistent revenue.
- Equipment expenses: Machinery maintenance or replacement can require a large upfront investment.
How Can Finance Improve Cash Flow in Manufacturing?
Working capital finance for manufacturing businesses is designed to bridge the gap between expenses and income, giving manufacturers access to capital when they need it most. Finance can help in several ways:
- Smoothing out cash flow cycles: Finance helps cover expenses during slow payment periods.
- Funding growth opportunities: Access to credit allows manufacturers to take on larger orders or new contracts.
- Supporting day-to-day operations: Finance ensures payroll, rent, and supplier payments are made on time.
- Improving supplier relationships: Being able to pay suppliers early can lead to better terms and discounts.
By choosing the right finance options to stabilise cash flow in factories, manufacturers can avoid disruptions and maintain steady operations.
Types of Finance to Improve Cash Flow in Manufacturing
1. Secured Business Loans
When you take out a secured business loan, you put up assets like property, equipment, or vehicles as security. Because the lender’s risk is lower, these loans usually have lower interest rates and higher borrowing limits.
Secured loans are helpful for manufacturers because they can help pay for big capital investments or fill in big gaps in cash flow. A manufacturer might, for instance, use a secured loan to buy a lot of raw materials at a lower price or to improve the equipment in the factory.
Key advantages:
- Lower interest rates compared to unsecured loans.
- Higher loan amounts available.
- Longer repayment terms.
2. Unsecured Business Loans
An unsecured business loan doesn’t require security, making it faster to approve and more flexible. However, it typically comes with higher interest rates and shorter repayment terms.
This form of working capital finance for manufacturing businesses is ideal for short term cash flow support, like covering payroll, purchasing materials, or bridging delays in income.
Benefits include:
- Quick approval and funding.
- No need to pledge assets.
- Useful for immediate operational needs.
3. Overdrafts
A business overdraft allows a manufacturer to withdraw more money than is currently in their account, up to a pre-approved limit. This flexible financing option lets you get funding right away for unexpected costs or temporary shortfalls.
For example, if a client delays payment on a major order, an overdraft can help maintain operations until funds arrive. It’s particularly useful for cash flow management when income and expenses don’t align perfectly.
Benefits:
- Funds are accessible as needed.
- Interest is charged only on the amount used.
- Offers flexibility for daily cash management.
Overdrafts are generally secured against business or personal assets, though some lenders offer unsecured overdraft facilities.
4. Equipment Finance
In manufacturing, machinery and equipment are critical assets. However, buying or upgrading equipment outright can significantly strain cash flow. Equipment financing provides a solution by allowing manufacturers to spread the cost of machinery over time.
Manufacturers can also raise capital against existing unencumbered equipment. They can borrow against the value of these assets to get large funding for major expenses.
Advantages:
- Preserves cash flow.
- Enables access to modern equipment.
- Offers potential tax benefits and depreciation advantages.
5. Trade Finance
Trade finance helps manufacturing businesses pay their suppliers while extending terms up to 90 days (sometimes even up to 120 days depending on the lender). This gives manufacturers enough time to pay back the facility while also maintaining good relationships with their suppliers.
Benefits:
- Strengthens supplier relationships.
- Reduces payment delays.
- Extends payment terms.
6. Invoice Finance and Selective Invoice Finance
Invoice finance allows manufacturers to access the value of unpaid invoices immediately instead of waiting for clients to pay. This is very useful for businesses with long debtor cycles.
There are two main types:
- Invoice finance: You submit all or most of your outstanding invoices to the lender, and the lender advances up to 85% of their value.
- Selective invoice finance: You choose which invoices to fund, giving more control and flexibility.
By converting receivables into cash, manufacturers can pay suppliers, cover wages, and reinvest in growth.
Advantages:
- Immediate cash flow boost.
- No need for additional collateral.
- Scalable (funding grows with your sales volume).
Invoice finance is a powerful cash flow finance solution for manufacturers dealing with slow-paying customers or large B2B clients.
Choosing the Right Finance Mix for Your Manufacturing Business
There’s no single type of finance that fits every single manufacturer out there. The best approach often involves combining multiple finance types to balance flexibility, cost, and risk.
For example:
- Use secured loans for large scale investments or business expansions.
- Maintain an overdraft for day to day liquidity.
- Use invoice finance to manage customer payment delays.
- Consider equipment finance when upgrading production machinery.
By structuring finance effectively, manufacturers can reduce financial stress, take advantage of growth opportunities, and keep operations stable.
When assessing manufacturing finance Australia options, consider:
- Your cash flow cycle and payment terms.
- Existing asset base and equity available for security.
- Short term versus long term funding needs.
- Interest rates, fees, and repayment flexibility.
How to Use Finance to Improve Cash Flow in Manufacturing
To use financing wisely, you need to know how each financial tool fits into your business’s cash flow cycle. This means that manufacturers need to make sure that their financing options match up with when they need to pay for things, when they need to manufacture, and when their customers pay.
Here are practical ways manufacturers can use finance to strengthen cash flow and maintain stability:
- Understand your cash flow cycle
Figure out when money usually comes in and goes out. This helps find where there are gaps, like between buying materials and getting paid by customers or during slow times of the year.
- Match finance products to specific needs
Different finance options solve different problems. For instance, invoice financing can help you get money that is tied up in receivables, and equipment financing can help you buy new machinery without using up all of your working capital. Using the right product for the right job keeps your cash flow steady and easy to predict.
- Maintain a liquidity buffer
Facilities like overdrafts or short term unsecured loans can act as a safety net for unexpected expenses or delayed payments, helping you avoid any disruptions to your operations. - Monitor performance and adjust
Check your finances often to make sure that the mix of funding still helps you reach your goals. Your financial needs will change as your business grows. What worked last year might not be the best fit anymore this year. - Work with a specialist finance partner
Working with a knowledgeable commercial finance broker, like Dark Horse Financial, can help you find the best loan options and set them up in a way that keeps your cash flow stable over time. A good broker also talks to lenders on your behalf, which saves you time and gives you more access to competitive funding options.
Final Thoughts
To keep your business healthy and able to grow, you need to know how to use finance to improve cash flow. Manufacturing finance like secured and unsecured loans, overdrafts, equipment finance, trade finance, and invoice finance provides manufacturers with flexibility and stability. When used wisely, these finance options not only help cover short term expenses but also position manufacturers for long term growth.
Disclaimer: Loans and their accompanying benefits are available only to those who qualify for them and have been approved. Though we put a lot of care into writing this article, the information presented within is general and doesn’t consider your unique situation. It is not meant to serve as a substitute for professional advice, and you should not rely on it solely for any major financial decisions. You should always consult with a professional when you’re dealing with finance, tax, and accounting matters.
Get Manufacturing Business Cash Flow Solutions Via Finance
Dark Horse Financial offers manufacturing business finance in Brisbane, Melbourne, Sydney, and all over Australia. We connect you with the right lenders so you can get the best rates and terms for your financing. Contact us today to learn more
